GOODWILL AND INTANGIBLE ASSETS

Goodwill

The following table reflects goodwill at June 24, 2016 and December 25, 2015 (in thousands):



	Staffing Services			Managed Services			Total Company
Balance at December 25, 2015
Goodwill before impairment	$	210,281		$	104,424		$	314,705
Accumulated impairment loss	(46,210		)	—			(46,210		)
Goodwill, net	164,071			104,424			268,495

Acquired goodwill and other (1)	(3,831		)	25,491			21,660
Impairment loss	(50,700		)	(15,169		)	(65,869		)
Foreign currency translation	—			942			942

Balance at June 24, 2016
Goodwill before impairment	206,450			130,857			337,307
Accumulated impairment loss	(96,910		)	(15,169		)	(112,079		)
Goodwill, net	$	109,540		$	115,688		$	225,228

(1) Effective January 4, 2016, we acquired the RPO business of Aon Hewitt, which has been substantially integrated into our PeopleScout service line, and is part of our Managed Services reportable segment. Accordingly, the goodwill associated with the acquisition has been assigned to our Managed Services reportable segment based on our preliminary purchase price allocation. For additional information see Note 2: Acquisitions. Effective December 1, 2015, we acquired SIMOS, which is part of our Staffing Services reportable segment. The amount presented includes year-to-date adjustments to the preliminary SIMOS purchase accounting for goodwill.

Intangible assets

The following table presents our purchased finite-lived intangible assets (in thousands):



	June 24, 2016							December 25, 2015
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Finite-lived intangible assets (1):
Customer relationships (2)	$	166,983	$	(46,499	)	$	120,484	$	161,376	$	(36,846	)	$	124,530
Trade names/trademarks	10,859		(4,841		)	6,018		5,179		(3,447		)	1,732
Non-compete agreements	1,800		(1,357		)	443		1,800		(1,177		)	623
Technologies	17,209		(7,872		)	9,337		17,310		(6,536		)	10,774
Total finite-lived intangible assets	$	196,851	$	(60,569	)	$	136,282	$	185,665	$	(48,006	)	$	137,659


(1)	Excludes assets that are fully amortized.


(2)	Balance at June 24, 2016, is net of impairment loss of $28.9 million.

Finite-lived intangible assets include customer relationships and technologies of $34.9 million and $0.4 million, respectively, based on our preliminary purchase price allocation relating to our acquisition of the RPO business of Aon Hewitt. Refer to Note 2: Acquisitions, for additional information regarding this acquisition.

Amortization expense of our finite-lived intangible assets was $6.7 million and $12.8 million for the thirteen and twenty-six weeks ended June 24, 2016, respectively, and $4.6 million and $9.7 million for the thirteen and twenty-six weeks ended June 26, 2015, respectively.

The following table provides the estimated future amortization of finite-lived intangible assets as of June 24, 2016 (in thousands):



Remainder of 2016	$	12,454
2016	23,150
2017	21,792
2018	17,363
2019	15,687
Thereafter	45,836
Total future amortization	$	136,282

We also held indefinite-lived trade names/trademarks of $6.0 million and $16.2 million as of June 24, 2016 and December 25, 2015, respectively. The balance at June 24, 2016 is net of an impairment charge of $4.5 million. In addition, due to a realignment of our branch network, we began amortizing $5.7 million of previously indefinite-lived trade names over their current estimated useful lives of three years, which commenced as of December 26, 2015.

Impairment

We evaluate goodwill annually for impairment at the reporting unit level and whenever circumstances occur indicating that goodwill might be impaired. These events or circumstances could include a significant change in the business climate, operating performance indicators, competition, loss of customers, or sale or disposition of a significant portion of a reporting unit. We monitor the existence of potential impairment indicators throughout the fiscal year.

The impairment test involves comparing the fair value of each reporting unit to its carrying value, including goodwill. We consider our service lines: Labor Ready, Spartan Staffing, CLP Resources, PlaneTechs, Centerline, Staff Management | SMX, SIMOS, PeopleScout, hrX, and MSP to be our reporting units for goodwill. Fair value reflects the price that a market participant would be willing to pay in a potential sale of the reporting unit. If the fair value exceeds carrying value, then we conclude that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, a second step is required to measure the possible goodwill impairment loss. The second step includes hypothetically valuing the tangible and intangible assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. Then, the implied fair value of the reporting unit's goodwill is compared to the carrying value of that goodwill. If the carrying value of the reporting unit's goodwill exceeds the implied fair value of the goodwill, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value.

Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions to evaluate the impact of operating and macroeconomic changes on each reporting unit. The fair value of each reporting unit was estimated using a combination of a discounted cash flow methodology and the market valuation approach using publicly traded company multiples in similar businesses. This analysis required significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. The weighted average cost of capital used in our most recent impairment test was risk-adjusted to reflect the specific risk profile of the reporting units and ranged from 12% to 17%. The combined fair values for all reporting units were then reconciled to our aggregate market value of our shares of common stock on the date of valuation, while considering a reasonable control premium.

We performed our annual goodwill impairment analysis as of the first day of our fiscal second quarter and recorded a goodwill impairment charge of $65.9 million with respect to the Staff Management | SMX, PlaneTechs, and hrX reporting units as follows:

•

Staff Management | SMX (Exclusive recruitment and on-premise management of a facility's contingent industrial workforce) - In April 2016, we were notified by Amazon and reported their plans to reduce the use of contingent labor and realign their contingent labor vendors for warehousing. They are reducing the use of our services for their warehouse fulfillment centers in the United States and focus our services on their planned expansion of distribution service sites to a national network for delivery direct to the customer. Amazon is our largest customer and represented approximately $354 million, or 13.1%, of total company revenues for the fiscal year ended December 25, 2015, and $106 million, or 8.0%, of total company revenues for the twenty-six weeks ended June 24, 2016, and $125 million, or 10.4%, for the comparable period in the prior year. We estimate that the change in scope of our services will decrease revenues for the remainder of 2016 by approximately $125 million, compared to the prior year. We have lowered our future expectations, which triggered a goodwill impairment of $33.7 million.

•

PlaneTechs (Skilled mechanics and technicians to the aviation and transportation industries) - Year-to-date revenues have declined in excess of 30% compared to the prior year as significant projects have been completed for a major aviation customer and their supply chain. There currently are no significant projects in the pipeline. PlaneTechs has been diversifying from providing services to one primary customer without offsetting growth in the broader aviation and transportation marketplace. As a result of significantly underperforming against current year expectations and increased future uncertainty, we have lowered our future expectations, which triggered a goodwill impairment of $17.0 million.

•

hrX - (Outsourced recruitment of permanent employees on behalf of clients) - Sales of this service line include our internally developed applicant tracking software (“ATS”). Actual stand alone ATS sales and service were $3.4 million for fiscal 2015 and have recently declined. ATS sales and prospects have underperformed against our expectations. As a result of underperforming against our current year expectations and increased future uncertainty in customer demand, we lowered our future expectations, which triggered a goodwill impairment of $15.2 million.

We generally record acquired intangible assets that have finite useful lives, such as customer relationships, in connection with business combinations. We review intangible assets that have finite useful lives and other long-lived assets whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable. Factors considered important that could result in an impairment review include, but are not limited to, significant underperformance relative to historical or planned operating results or significant changes in business strategies. We estimate the recoverability of these assets by comparing the carrying amount of the asset to the future undiscounted cash flows that we expect the asset to generate. An impairment loss is recognized when the estimated undiscounted cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset. When an impairment loss is recognized, the carrying amount of the asset is reduced to its estimated fair value based on discounted cash flow analysis or other valuation techniques. With the change in scope of services by Staff Management | SMX to our largest customer, we have lowered our future expectations, which was the primary trigger of an impairment to our acquired customer relationships intangible asset of $28.9 million. Considerable management judgment was necessary to determine key assumptions, including projected revenue and an appropriate discount rate of 13%. Actual future results could vary from our estimates.

We have indefinite-lived intangible assets related to our Staff Management | SMX and PeopleScout trade names. We test our trade names/trademarks annually for impairment and when indications of potential impairment exist. We utilize the relief from royalty method to determine the fair value of each of our trade names. If the carrying value exceeds the fair value, we recognize an impairment loss in an amount equal to the excess. We used a royalty rate of 10% and a discount rate of 17% in our valuation. Considerable management judgment is necessary to determine key assumptions, including projected revenue, royalty rates, and appropriate discount rates. With the change in scope of services to our largest customer, we have lowered our future expectations, which was the primary trigger of an impairment to the acquired trade name of Staff Management | SMX of $4.5 million.